A lien is the right of a person who has lawfully received property belonging to another to retain that property for so long as a debt owed by the owner of the property remains unpaid.
Liens may be recognised by common law or may be created by contractual agreement.
Common law liens:
- are a form of possessory security
- only grant the right to retain the goods which are subject to the lien
- don't grant the holder the power to sell the goods to discharge or reduce the debt owed
- may be asserted to retain possession of goods until the relevant charges or debt is paid.
Liens created by contracts may improve or alter the limitations of common law rules.
Categories of Liens
Categories of liens recognised by law include those between:
- stockbrokers and clients
- bankers and customers
- hoteliers and guests
- factoring companies
- warehousing companies and customers
- tailors and
However, the transaction in question must be one which is consistent with the circumstances required for a lien to arise in accordance with the established cases.
Law of Liens
Liens require the holder of the lien to:
- receive possession of relevant property lawfully, and
- continue possession lawfully.
Equitable liens do not require possession the relevant property and have some qualities of charges: they give rise to a right to sell the property with the permission of a court.
Some forms of equitable liens arise by way of statute. For instance the Law of Property Act 1925 applies and the interest should be registered as a charge over land.
Liens do not entitle the lienholder to sell the property unless a statutory exception applies to permit sale. The rights are set out at:
Dealing with property contrary to the terms of the lien are likely to discharge it and render the lienholder liable to the owner of the property in the tort of conversion.
Types of Liens
Particular liens only apply to secure the debt arising from a particular transaction, rather than a series of transactions.
The lien secures the property of the creditor for the sum due to be paid under the transaction.
General liens on the other hand secure property for all of the sums owed by the debtor.
General liens may be important in insolvency situations, as they may take priority over the rights of other creditors who the debtor is owed money.
What Type of Lien is it?
The type of lien is determined by reference to the terms of the contract. Where the contract does not refer to such matters, by recourse to categories of case established by case law.
Liens are only available by way of express agreement between the parties or if the case in question falls into the class previously recognised by the courts.
When does a Lien End?
A lien may be terminated in a number of different circumstances which include where:
- The debtor discharges its obligations in respect to the lien. Usually, this will be the payment or tender of payment for the debt. However, contractual liens may require further steps
- The parties agree to discharge the lien or one of them waives their rights
- The lienholder does some act to terminate the lien, such as transferring possession of the property to a third party.
Holding property without a lien is likely to give rise to liability in the tort of conversion.